Loans to directors

What is the general rule?

Company loans to directors, connected persons or holding company directors may be permitted but shareholder approval via OR may be needed BEFORE the transaction is entered into.

What is a quasi-loan?

Where a company agrees to pay off an outstanding amount owed by a third party on the understanding that the director will later reimburse the company?

What is a credit transaction?

A transaction between company and director where the company provides goods and services on a credit basis which will be paid at a later date.

What is a guarantee or a provision of security?

Where a director obtains a loan and the company stands as guarantor for the repayment of the loan or the company provides the bank with security over its assets.

What transactions need shareholder approval?

Loan or quasi loan transaction over £10,000 needs shareholder approval via OR

Credit transactions or guarantee/security over £15,000 need shareholder approval via OR

What transactions do NOT need shareholder approval?

A loan for expenditure on company business up to £50,000

Loans for defending proceedings brought against a director

Loans for defending regulatory actions or investigations

What is the procedure for approval of the loan?

A memorandum must be available prior to the vote stating:

1. the nature of the transaction

2. the amount of loan and purpose of it

A copy must be made available 15 days prior to the GM and be available at the GM, or circulated to all members if the written resolution is used.

What if the transaction is between a director of the holding company and the subsidiary company?

Shareholder approval via OR is needed from both companies.

What if the transaction is between a parent company and its 100% owned subsidiary?

No shareholder approval is required at either company, but directors need to approve at the parent company.